Consumer Finance Insights
February 27, 2017

DC Court of Appeals Orders Rehearing of PHH v. CFPB

On February 16, 2017, the United States Court of Appeals for the DC Circuit granted Respondent Consumer Financial Protection Bureau’s (CFPB) petition for rehearing en banc of PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir.).  In doing so, the court vacated its October 11, 2016, order, which had held, inter alia, that the CFPB’s single-director structure that permitted removal of the director only “for cause” was unconstitutional.  To remedy what the court found was a constitutional violation, the court had severed the “for-cause” provision of the Dodd-Frank Act in its October 11th order.  LenderLaw Watch previously reported on the PHH case here, here and here.

The case will now be reheard by the D.C. Circuit en banc on May 24, 2017.  The order granting rehearing indicates that Chief Judge Garland did not participate.  The court set a briefing schedule leading up to the May 24th oral argument:  Petitioners’ and amici curiae briefs are due on March 10, 2017; Respondent’s and amici curiae briefs are due on March 31, 2017; and Petitioners’ reply brief is due on April 10, 2017.

The court directed the parties to address three discrete issues in their briefs:

  1. “Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?”
  2. “May the court appropriately avoid deciding that constitutional question given the panel’s ruling on the statutory issues in this case?”
  3. “If the en banc court, which has today separately ordered an en banc consideration of Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?”

As to the third question, in Lucia v. SEC, the Securities and Exchange Commission (SEC) had rejected the petitioners’ argument that their administrative hearing (concerning alleged violations of the Investment Advisers Act of 1940 and the rule against misleading advertising) was unconstitutional because the presiding administrative law judge (ALJ) was unconstitutionally appointed.  832 F.3d 277, 280 (D.C. Cir. 2016).  The petitioners argued to the D.C. Circuit that “the Commission’s decision and order … should be vacated because the ALJ rendering the initial decision was a constitutional Officer who was not appointed pursuant to the Appointments Clause,” U.S. Const. art. II, § 2, cl. 2.  832 F.3d at 283.  The court rejected the petitioners’ argument and concluded that the ALJ was an “employee,” not an “inferior officer,” and thus was not required to be appointed pursuant to the Appointments Clause.  Id. at 288.  However, this ruling is now unsettled given the D.C. Circuit’s decision to rehear the issue in Lucia en banc.

As it relates here, Senior Circuit Judge Randolph’s concurrence in the October 11, 2016 PHH order stated:  “I believe that the ALJ who presided over the hearing was an ‘inferior Officer’ within the meaning of Article II, section 2, clause 2 of the Constitution.  That constitutional provision requires ‘inferior officers’ to be appointed by the President, the ‘Courts of Law,’ or the ‘Heads of Departments.’  This ALJ was not so appointed.  Pursuant to an agreement between the Bureau and the Securities and Exchange Commission, the SEC’s Chief Administrative Law Judge assigned him to the case.  This in itself rendered the proceeding against petitioners unconstitutional.”  PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir. Oct. 11, 2016) (Randolph J., concurring).

The effect of the rehearing in the PHH case is that the CFPB’s single-director management structure is unsettled at least until the May 24, 2017 hearing.  And it appears that the D.C. Circuit’s focus on persons who are deemed “inferior officers” under the Appointments Clause in two pending matters before the Circuit may have a significant role in its ruling.  LenderLaw Watch will provide continue to provide updates on the PHH case.

Goodwin attorneys Tom Hefferon and Willy Jay were among the counsel for PHH on this appeal.

**Editor’s Note:  The opinions and analysis in this post are those of LenderLaw Watch, and do not necessarily reflect the views or opinion of PHH or of other Goodwin clients.

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